Saving for the future is an essential aspect to anyone’s career, for contractors, however, it is of particular importance as it can often be difficult to plan so far ahead whilst also juggling their day to day working requirements.
Many contractors make the mistake of thinking they are too young to begin planning for their retirement, and subsequently, hold off on establishing themselves within a pension scheme. Starting early, however, can have tremendous benefits for a contractor, not least being that they are able to retire comfortably earlier than expected.
For contractors operating under an umbrella company, this issue is quite easily solved due to the government’s automatic enrolment workplace pensions scheme. This scheme means that employers (umbrella companies) are legally obliged to administer a workplace pension for employees (contractors).
Automatic enrolment was phased into businesses from October 2012, starting with the largest UK employers, with all businesses required to have introduced a scheme by 1st February 2018. These schemes were introduced due to findings that many employees were failing to adequately save for retirement, which could ultimately have disastrous consequences, not only for the employee themselves but for the economy as a whole.
The Workplace Pension scheme sees both employee and employer making minimum contributions towards a pension pot, these contributions increased year on year until April 2019. Percentages are calculated based on an employee’s wage, currently, employers must contribute 3% and employees 5%.
An umbrella company is required to automatically enrol umbrella employees into a pension scheme and make contributions if the following criteria are met:
- Have been contracting with Sterling umbrella for 12 weeks
- Aged between 22 and state pension age
- Earn more than £10,000 per annum
What happens if you already have your own pension scheme?
Any employee can choose to opt-out of a workplace pension. This is often chosen when an employee has an existing pension scheme. The downside of opting out to continue contributing to your own scheme, however, is that you will not receive employer contributions and therefore will miss out on substantial pension savings as a result.
Sterling’s contractor pensions
Sterling’s pension scheme comes from one of the UK’s leading providers, NEST, a not-for-profit organisation that provides our umbrella employees with a straightforward scheme.
More information on NEST can be found here.